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The consumer prices index (CPI) rate increased to 3% in the year to January 2025, up from 2.5% in December, according to the Office for National Statistics (ONS). Transport costs, such as fuel prices and air fares, contributed to the increase, along with the cost of food and non-alcoholic drinks.
The CPI rate is now at its highest level since March 2024, and is higher than the forecast rate of around 2.8%.
What is the current CPI rate?
The ONS report for January 2025 found that the CPI rate increased to 3%, which is slightly higher than economists’ predictions. This increase has been driven by a rise in transport costs, along with the increased cost of food and non-alcoholic drinks, as well as the rise in private school fees which are now subject to VAT at the standard rate of 20%.
- The cost of transport, including fuel and air fares, rose by 1.7% in the year to January 2025, up from 0.6% in December. The average price of petrol rose by 0.8p between December 2024 and January 2025, to stand at 137.1p per litre.
- Food and non-alcoholic beverage prices increased by 3.3% in the year to January 2025, up from 2.0% in December, largely driven by the rising cost of meat, and bread and cereals.
- The annual inflation rate for education was 7.5% in January 2025, up from 5% in December 2024. The only item that changed price was the cost of private school fees, where prices rose by 12.7%. A contributing factor to this may have been that private school fees are now subject to VAT at 20%.
- The annual inflation rate for housing and household services was 5.6% in the year to January 2025, down from 6% in December 2024. This decrease was mainly due to a downward cost of gas and electricity. Gas prices rose by 1.3% between December 2024 and January 2025, having risen by 6.8% a year ago. Electricity prices rose by 1.2% between December 2024 and January 2025, having risen by 4% the year before.
- Core CPI – all items minus food, energy, alcohol and tobacco – rose by 4.6% in the year to January 2025, up from 4.2% in December 2024.
Amy Knight, Personal Finance Expert at NerdWallet
What our Nerds say…
“The CPI measures the change in prices UK consumers pay for everyday goods and services, like groceries, fuel and clothing. It compares the prices of goods and services now with how much they cost a year ago. The Office for National Statistics (ONS) calculates and releases an updated figure each month.”
CPI rates history
| Month | Annual CPI rate |
|---|---|
| January 2025 | 3% |
| December 2024 | 2.5% |
| November 2024 | 2.6% |
| October 2024 | 2.3% |
| September 2024 | 1.7% |
| August 2024 | 2.2% |
| July 2024 | 2.2% |
| June 2024 | 2% |
| May 2024 | 2% |
| April 2024 | 2.3% |
| March 2024 | 3.2% |
| February 2024 | 3.4% |
| January 2024 | 4% |
What is the UK target inflation rate?
It’s down to the Bank of England to keep inflation stable and keep price rises manageable for households and businesses – the target inflation rate set by the government is 2%. The Bank of England attempts to influence inflation through monetary policy, including how much it costs to borrow by setting interest rates.
The Bank of England cut the base rate of interest from 4.75% to 4.5% in February 2025, with the next decision on the base rate due on 19 December. Further base rate cuts aren’t expected until 2025 after the rate of inflation accelerated again towards the end of 2024.
Since the end of 2023, inflation has gradually been falling back to the Bank of England’s target of 2%, with May 2024’s figure hitting the Bank of England’s target for the first time since July 2021.
This is good news after inflation had increased sharply throughout 2021 and 2022 following the end of coronavirus restrictions and the war in Ukraine. As the economy reopened following lockdowns, shifts in consumer demand and supply disruptions for certain goods (such as cars) all contributed to a rise in inflation, increasing the cost of living.
Then the war in Ukraine tightened the supply of oil, gas and grain, contributing to an increase in energy prices (and inflation) throughout 2022.
What is in the CPI ‘basket’?
The goods and services that the CPI measures are often referred to collectively as the ‘shopping basket’. This changes annually to reflect consumers’ behaviour and spending patterns.
There are more than 700 goods and services in the basket. Items include:
- furniture, furnishings and carpets
- alcoholic drinks
- clothing
- food
- electricity, gas and other fuels
In those broad segments are more specific categories, such as “milk, cheese and eggs” under food.
And then there are actual items within specific categories, for example “non-dairy milk drinks and yoghurts” under “milk, cheese and eggs”.
» MORE: Shrinkflation: Why The Cost-Of-Living Crisis is Far From Over
Examples of items that were added in 2024 include “vinyl music”, reflecting the fact that more people are buying records, and “air fryers”, because these have become more popular in recent years.
Examples of items that were removed in 2024 include “sofa beds”, reflecting the fact that pull-out beds have potentially become more popular, and “hand hygiene gel,” because demand has dropped since the coronavirus pandemic.
The difference between CPI and CPIH
The CPI is just one of a few indices used in the UK to measure inflation. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) is the headline measure used by the ONS.
The CPIH is almost the same as the CPI, but it also measures the change in the cost of owning, maintaining and living in your home, including council tax. Because it includes these costs, the ONS calls it the ‘most comprehensive measure of inflation’.
However, it doesn’t include mortgage payments – instead, the ONS measures how much it would cost homeowners to rent their homes. This is called ‘rental equivalence’.
The CPIH rose by 3.9% in the 12 months to January 2025, which is an increase from 3.5% in December.
The difference between CPI and RPI
RPI refers to the Retail Prices Index, which is the longest-standing measure of inflation in the UK.
It broadly measures the same goods and services as the CPI, but also includes mortgage interest payments. House prices and interest rates therefore affect the RPI.
While the CPIH includes the cost of owning, maintaining and living in your home, it doesn’t include mortgage interest payments as the RPI does.
There’s another index derived from the RPI called the RPIX, which excludes mortgage interest payments. The RPIX was the UK’s lead inflation index until 2003, when it was replaced by the CPI.
The RPI and the CPI are calculated differently, using different methods of calculating average prices, as well as different formulae.
The ONS believes that the RPI isn’t a great statistic, because it is likely to considerably overstate or at times understate inflation, and it discourages its use.
However, it still calculates and publishes the RPI monthly, because it’s used in long-term contracts and index-linked gilts. The government is planning to change the way that the RPI is calculated, bringing it in line with the CPIH, but this won’t happen before 2030.
The RPI rose by 3.6% in the 12 months to January 2025, up from 3.5% in December 2024.
Some consumer costs are still linked to RPI inflation
While the ONS discourages its use, and the UK’s national statistician, Professor Sir Ian Diamond, has called it ‘not fit for purpose’, some elements of the UK economy are still linked to RPI inflation.
Items that bring in money for the government tend to be linked to the RPI figure, which is usually higher than the CPI figure. Consumer costs that increase in line with the RPI include car tax, tobacco duty, alcohol duty and interest on student loans. Some mobile phone tariffs and train tickets are linked to the RPI figure, too.
On the other hand, government spending tends to be linked to the lower CPI figure. This includes the state pension, universal credit and jobseekers’ allowance.
How is CPI used?
As mentioned above, the government uses CPI for the Bank of England’s target inflation rate. It’s also used when it reviews and uprates certain state benefits and tax thresholds.
The ONS also monitors wage growth in relation to the CPI and CPIH. As high inflation means that consumers have less purchasing power, the ONS measures how much wages have actually increased when taking the level of inflation into account.
» MORE: What can you do about high UK inflation?
Image source: Getty Images
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